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Report to the Chairman, Subcommittee on International Organizations, 
Human Rights, and Oversight, Committee on Foreign Affairs, House of 
Representatives: 

United States Government Accountability Office: 
GAO: 

November 2008: 

Foreign Assistance: 

Continued Efforts Needed to Strengthen USAID's Oversight of U.S. 
Democracy Assistance for Cuba: 

Cuba Democracy Assistance: 

GAO-09-165: 

GAO Highlights: 

Highlights of GAO-09-165, a report to the Chairman, Subcommittee on 
International Organizations, Human Rights, and Oversight, Committee on 
Foreign Affairs, House of Representatives. 

Why GAO Did This Study: 

The U.S. Agency for International Development’s (USAID) Cuba Program 
provides assistance to support human rights and promote nonviolent 
democratic change in Cuba. From 1996 through 2008, the program awarded 
$83 million in grants to nongovernmental organizations and 
universities. In 2006, GAO found weaknesses in program oversight that 
increased the risk of grantees’ improperly using grant funds and 
failing to comply with U.S. laws. In 2008, misuse of grant funds at 
organizations with the program’s two largest grants was detected. GAO 
was asked to examine (1) actions that USAID has taken since 2006, or 
plans to take, to improve its award and oversight of the Cuba Program’s 
grants and (2) actions that USAID has taken in response to the recently 
detected misuses of grant funds. GAO analyzed USAID and grantee 
records, conducted limited reviews at five grantees, and interviewed 
agency and grantee officials. 

What GAO Found: 

Since 2006, USAID has taken a number of steps to address identified 
problems with the Cuba Program’s awards of democracy assistance and 
improve oversight of the assistance. For example, USAID has 
competitively awarded all Cuba Program grants since 2006, compared with 
5 percent of grants awarded in 1995-2006; has hired more staff for the 
program office since January 2008; and contracted in April 2008 for 
financial services—such as reviews of grantee internal controls and 
procurement systems—to enhance oversight of grantees. USAID also has 
worked to strengthen program oversight by, for instance, ensuring pre-
award and follow-up reviews, improving grantee internal controls and 
implementation plans, and providing guidance and monitoring about 
permitted types of assistance and cost sharing. However, USAID has not 
staffed the Cuba Program at the level the agency has determined is 
needed for appropriate oversight; as of October 2008, the program 
office had five staff, compared with the 11 recommended in two USAID 
assessments. Further, because many of USAID’s actions to improve 
oversight were initiated recently, their impact on the risk of the 
program grantees misusing grant funds or failing to comply with U.S. 
laws and regulations is not yet evident. In June 2008, for example, 
USAID’s new financial services contractor found unsupported purchases 
at the organization with the program’s largest grant. 

In response to the misuse of funds at organizations with the two 
largest Cuba Program grants, USAID suspended the two grantees in March 
and July 2008, respectively, pending the results of criminal 
investigations. To detect financial vulnerabilities at other grantees, 
USAID announced in mid-July 2008 that it would accelerate planned 
reviews of program grantees’ procurement systems and initiate audits of 
their incurred cost, and it partially suspended two additional grantees 
pending the results of the procurement reviews. The program’s other 
grants remained active pending the results of these reviews and audits. 
The procurement reviews—completed in August 2008 by the new financial 
services contractor—identified internal control, financial management, 
and procurement weaknesses at three grantees; USAID is working with the 
grantees to correct these weaknesses. The USAID Inspector General will 
oversee the incurred cost audits, which USAID expects to be completed 
by November 2008 under a separate contract with another firm. 

What GAO Recommends: 

GAO recommends that USAID (1) ensure that the Cuba Program is staffed 
at the level needed to fully implement planned monitoring activities 
and (2) periodically assess the program’s overall efforts to reduce 
grantee risks. 

Commenting on a draft of this report, USAID said that it was working to 
ensure the Cuba Program has adequate staffing for strong program 
oversight and that it would take steps to periodically assess the 
program’s overall efforts to address grantee risks. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-165]. For more 
information, contact David Gootnick at (202) 512-3149 or 
gootnickd@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

USAID Has Taken Steps to Improve Awards and Oversight of Cuba Democracy 
Assistance, but Staffing for Oversight Is Not Yet Complete: 

USAID Took Several Steps in Response to Reports of Misused Grant Funds 
but Has Not Provided for Ongoing Risk Management: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Status of USAID's Proposed and Reported Actions to Improve 
Awards and Oversight for Cuba Democracy Assistance: 

Appendix III: Comments from the U.S. Agency for International 
Development: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Status of USAID Cuba Democracy Grants as of October 2008: 

Table 2: GAO's Findings and Recommendations and USAID's Proposed or 
Reported Actions and the Status of These Actions: 

Figures: 

Figure 1: Funding for U.S. Democracy Assistance for Cuba, 1996-2008: 

Figure 2: November 2006 GAO Recommendations to Improve USAID Oversight 
of the Cuba Program's Democracy Assistance: 

Figure 3: USAID Cuba Program Democracy Grantees in 2005 and 2008: 

Abbreviations: 

CFC: Center for a Free Cuba: 

GAD: Grupo de Apoyo a la Democracia: 

NGO: Nongovernmental organization: 

USAID: U.S. Agency for International Development: 

USINT: U.S. Interests Section in Havana: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

November 24, 2008: 

The Honorable William D. Delahunt: 
Chairman: 
Subcommittee on International Organizations, Human Rights, and 
Oversight: 
Committee on Foreign Affairs: 
House of Representatives: 

Dear Mr. Chairman: 

Working through the U.S. Agency for International Development (USAID) 
and the Department of State (State), the U.S. government provides 
assistance intended to support human rights and to promote nonviolent 
democratic change in Cuba through the development of Cuba's civil 
society.[Footnote 1] From 1996 through 2008,[Footnote 2] USAID's Cuba 
Program[Footnote 3] awarded grants[Footnote 4] totaling about $83 
million to nongovernmental organizations (NGO) and universities 
providing democracy assistance through a wide range of activities, such 
as the provision of humanitarian aid, human rights training, uncensored 
books and newsletters, and advocacy for human and workers' rights. For 
2009, the administration has requested $20 million for Cuba democracy 
assistance to be allocated between USAID and State. 

In November 2006, we identified problems with USAID's management and 
oversight of its Cuba Program in 1996 through 2005.[Footnote 5] These 
problems included the extensive use of noncompetitive awards and grant 
modifications, as well as oversight weaknesses that increased the risk 
of grantees' improper use of grant funds and noncompliance with U.S. 
laws and regulations. To help USAID address these problems, we made 
several recommendations related to USAID's oversight of the assistance. 
[Footnote 6] In 2006 and 2007, USAID said that it was taking steps to 
address our recommendations and improve its management and monitoring 
of democracy assistance for Cuba. However, misuse of grant funds by 
employees of organizations with the two largest USAID Cuba Program 
grants was reported in 2008. 

You requested that we assess (1) actions that USAID has taken since 
2006, or plans to take, to improve its award and oversight of the Cuba 
Program's grants and (2) actions that USAID has taken in response to 
the recently reported misuses of Cuba Program grant funds. To address 
these objectives, we analyzed agency records, including meeting agendas 
and minutes, draft and final changes to agency policy and guidance, and 
audit and financial reports, including audit reports issued by the 
State and USAID Inspectors General in July and September 2007, 
respectively. In addition, we conducted a limited follow-up review of 
financial and other records at 5 of 10 grantees we had analyzed in our 
2006 report.[Footnote 7] We also observed two grantee monitoring visits 
conducted by USAID Cuba Program staff in June 2008. We interviewed 
agency officials, including the current and former Cuba Program 
directors, contracting officials, and auditors. We conducted this 
performance audit from May through July 2007 and from May through 
November 2008, in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 
(See app. I for additional details about our scope and methodology.) 

Results in Brief: 

Since 2006, USAID has taken a number of steps to address identified 
problems with its awards of democracy assistance for Cuba and to 
improve oversight of the assistance. However, USAID has not staffed the 
Cuba Program at the level the agency has determined is needed for 
appropriate oversight. Moreover, because many of USAID's actions to 
improve oversight were initiated recently, the extent to which they 
will reduce the risk of the Cuba Program's grantees misusing grant 
funds or failing to comply with U.S. laws and regulations is not yet 
evident. 

* Awards. USAID's Cuba Program has competitively awarded all $16 
million of new democracy assistance since 2006, compared with only 5 
percent (about $4 million) of assistance awarded in 1995-2005. In 
addition, USAID's Cuba Program has discontinued its practice of 
modifying existing grants to increase funding and extend completion 
dates instead of awarding new ones and has implemented a policy to 
require grantees to submit interim program evaluations in conjunction 
with any future requests for additional funding. These changes in 
program grant award policy and practices occurred in the context of 
increased funding for U.S. democracy assistance for Cuba. 

* Oversight. USAID recently has taken, or plans to take, a number of 
actions to strengthen management and oversight of the Cuba Program's 
democracy assistance. To increase resources for grant management and 
oversight, in December 2006, USAID established a project committee 
comprising key USAID and State senior managers. Also, since January 
2008, USAID has increased staffing for its Cuba Program office in 
Washington, D.C., from two to five persons; however, the number of 
staff falls short of the level that, according to USAID assessments, is 
needed to ensure appropriate oversight of the Cuba Program. In April 
2008, to strengthen program oversight and better manage risk associated 
with grantees, USAID contracted with a firm to conduct financial and 
other reviews of grantees over 2 years. In addition, USAID plans to use 
contract services to train and build grantees' capacity. To strengthen 
its oversight during grant preaward, award, implementation, and 
closeout,[Footnote 8] since 2006 USAID has issued agencywide executive 
guidance on conducting and following up on preaward audits, monitored 
audit lead time and follow-up, and included follow-up requirements in 
new grants. In 2007 and 2008, the Cuba Program took steps to educate 
grantees about internal controls and grant regulations, policies, and 
procedures and reviewed and approved grantee implementation plans. Also 
in 2007 and 2008, USAID provided agencywide guidance on permissible 
assistance and cost sharing and is monitoring Cuba Program grantee 
compliance with this guidance. Finally, the Cuba Program office has 
implemented a structured approach for monitoring and evaluating grant 
programs and plans to develop a process, using new staff resources, for 
analyzing the results of its monitoring. Because many of USAID's 
actions to improve management and oversight were taken in 2007 and 
2008, any lessening of the risk of misuse of funds and noncompliance 
with laws and regulations as a result of these actions is not yet 
evident. For example, in June 2008, the USAID Cuba Program's new 
financial contractor found that one of the first three grantees it was 
tasked to review, Grupo de Apoyo a la Democracia (GAD), lacked adequate 
support for some expenditures; later that month, our limited review of 
five grantees' financial records confirmed this finding. 

In response to the recent reports of misuse of funds at organizations 
with two of the Cuba Program's largest grants, USAID suspended these 
grantees and initiated planned reviews of other grantees' procurement 
systems and audits of their incurred cost. USAID suspended the two 
grantees--the Center for a Free Cuba (CFC) and GAD--in March 2008 and 
early July 2008, respectively, pending the results of criminal 
investigations. To detect financial vulnerabilities at other grantees, 
USAID announced in mid-July 2008 that it would accelerate planned 
reviews of most current program grantees' procurement systems and 
initiate audits of their incurred cost,[Footnote 9] and it partially 
suspended two additional grantees pending the results of the 
procurement reviews. The program's other grants remained active pending 
the results of the reviews and audits. The procurement reviews-- 
completed in August 2008 under the financial services contract signed 
in April 2008--identified internal control, financial management, and 
procurement weaknesses at three grantees, including GAD; USAID is 
working with the grantees to correct these weaknesses. However, the 
procurement reviews have used nearly half of the funding set aside for 
the financial services contract signed in April 2008--a key element in 
the agency's strategy for strengthening program oversight and better 
managing risk associated with grantees. USAID's Inspector General will 
oversee the incurred cost audits, which USAID expects will be completed 
by November 2008 under a separate contract with an auditing firm. 

To strengthen oversight of the provision of democracy assistance for 
Cuba, we are recommending that the USAID Administrator (1) ensure that 
the Cuba Program office is staffed at the level needed to fully 
implement planned monitoring activities and (2) periodically assess the 
Cuba Program's overall efforts to address grantee risks and ensure 
compliance with laws and regulations. 

In written comments on a draft of this report, USAID said that it was 
working to ensure that the Cuba Program has adequate staff for strong 
program oversight and that it would take steps to periodically assess 
the Cuba Program's overall efforts to address grantee risks. USAID also 
provided technical comments, which we incorporated where appropriate. 

Background: 

The strategic objective of USAID's Cuba Program--part of the agency's 
Bureau for Latin America and the Caribbean--is to help build civil 
society in Cuba by increasing the flow of accurate information on 
democracy, human rights, and free enterprise to, from, and within Cuba. 
The responsibilities of the Cuba Program office include cochairing an 
interagency working group, developing assistance strategies and 
programs, recommending Cuba democracy assistance awards, and monitoring 
the implementation of USAID grants. Because of the absence of 
diplomatic relations between the United States and Cuba, USAID does not 
have staff in Cuba and its Washington-based staff have been unable to 
obtain visas to visit the island since 2002. State's U.S. Interests 
Section (USINT) in Havana plays a key role in implementing USAID's Cuba 
democracy assistance.[Footnote 10] 

From 1996 through 2005, USAID's Cuba Program awarded about $67 million 
in democracy assistance grants to NGOs and universities to support 
numerous activities related to promoting democracy and developing 
Cuba's civil society.[Footnote 11] In 2005, for example, Cuba Program 
grantees reported providing humanitarian and material assistance, 
training for independent civil society groups,[Footnote 12] and 
uncensored information.[Footnote 13] Several grantees also worked to 
increase international awareness of the Cuban regime's human rights 
record through activities such as sponsoring conferences and publishing 
studies, while one grantee focused primarily on planning for a 
democratic transition in Cuba. USAID records show that Cuba Program 
grantees provided this assistance to, among others, human rights 
activists, political dissidents, independent librarians, journalists, 
and political prisoners and their families. From 2006 through 2008, 
USAID's Cuba Program awarded 10 new democracy assistance grants 
totaling about $16.3 million, bringing the total value of grants since 
the Cuba Program's inception to about $83 million. As of October 2008, 
the Cuba program had 13 grants totaling about $32 million; these grants 
ranged in size from $500,000 to nearly $11 million. 

Congress appropriated $45 million for U.S. democracy assistance for 
Cuba in 2008; USAID has been allocated about $30 million of the 2008 
appropriation, with the remainder allocated to State.[Footnote 14] 
(Fig. 1 shows the funding for U.S. democracy assistance for Cuba for 
1996-2008.) The administration has requested $20 million for 2009; 
agency allocations for these funds have not yet been established. 
Increased funding for democracy assistance was a recommendation of the 
interagency Commission for Assistance to a Free Cuba (CAFC).[Footnote 
15] USAID's Cuba Program plans other substantial awards over the next 
few years. 

Figure 1: Funding for U.S. Democracy Assistance for Cuba, 1996-2008: 

[Refer to PDF for image] 

Fiscal Year: 1996; 
USAID: $0.5 million. 

Fiscal Year: 1997; 
USAID: $1.4 million. 

Fiscal Year: 1998; 
USAID: $2 million. 

Fiscal Year: 1999; 
USAID: $3.5 million. 

Fiscal Year: 2000; 
USAID: $3.5 million. 

Fiscal Year: 2001; 
USAID: $5 million. 

Fiscal Year: 2002; 
USAID: $5 million. 

Fiscal Year: 2003; 
USAID: $6 million. 

Fiscal Year: 2004; 
USAID: $21.4 million. 

Fiscal Year: 2005; 
USAID: $8.9 million; 
State: $8.1 million; 
Total: $17 million. 

Fiscal Year: 2006; 
USAID: $10.9 million; 
State: $5.5 million; 
Total: $16.4 million. 

Fiscal Year: 2007; 
USAID: $7.2 million; 
State: $6.1 million; 
Total: $13.3 million. 

Fiscal Year: 2008; 
USAID: $30 million; 
State: $15 million; 
Total: $45 million. 

Sources: GAO analysis of budget records, supplemented by interviews 
with USAID officials. 

Note: The President has requested $20 million for democracy assistance 
for Cuba for 2009. 

[End of figure] 

The following summarizes our November 2006 report's findings of 
problems with the USAID Cuba Program's awards and oversight of its Cuba 
democracy assistance from 1996 through 2005.[Footnote 16] 

* Awards. USAID's Cuba Program relied on unsolicited proposals to award 
about 95 percent (about $62 million) of its democracy assistance, 
although agency policy generally encourages competition for such 
awards. USAID's Cuba Program also frequently modified the amounts and 
length of existing grants, increasing the aggregate value of these 
initial agreements from about $6 million to about $50 million. In 
contrast, federal law and agency policy generally favor a competitive 
process; moreover, closing grants and initiating new ones has 
recognized advantages. 

* Oversight. Weaknesses in USAID's oversight of its assistance grants 
during the preaward, award, implementation, and closeout phases 
increased the risk of grantees' improper use of grant funds and 
noncompliance with applicable laws and regulations. Preaward audits of 
some grantees were not always completed before grant award, and USAID 
did not follow up adequately to correct deficiencies identified by 
these audits. Standardized language in grant agreements lacked the 
detail necessary to support program accountability and the correction 
of grantee deficiencies identified during preaward reviews. Moreover, 
the Cuba Program office did not adequately identify, prioritize, or 
manage at-risk grantees and did not have critical review or oversight 
procedures in place to monitor grantee activities or cost sharing. 
Additionally, USAID did not appear to routinely follow prescribed 
closeout processes to identify and recover inappropriate expenditures 
or unexpended funds. Our limited review of 10 grantees' financial 
records identified questionable expenditures and significant internal 
control weaknesses, which USAID had not detected, at 3 of the grantees; 
we referred these problems to the USAID Office of Inspector General. 

Figure 2 shows our 2006 recommendations to strengthen USAID's oversight 
of the Cuba Program's democracy grants. In 2006 and 2007, USAID said 
that it was taking steps to address our recommendations and improve its 
oversight of democracy assistance for Cuba. 

Figure 2: November 2006 GAO Recommendations to Improve USAID Oversight 
of the Cuba Program's Democracy Assistance: 

[Refer to PDF for image] 

November 2006 GAO Recommendations to Improve USAID Oversight of the 
Cuba Program's Democracy Assistance: 

* Improve the timeliness of preaward reviews to ensure their completion 
prior to the awarding of funds, and improve the timeliness and scope of 
follow-up procedures to assist in tracking and resolving issues 
identified during preaward reviews. 

* Require that grantees establish and maintain adequate internal 
control frameworks, including developing approved implementation plans 
for the grants. 

* Provide grantees specific guidance on permitted types of humanitarian 
assistance and cost-sharing and ensure that USAID staff monitors 
grantee expenditures for these items. 

* Develop and implement a formal and structured approach to conducting 
site visits and other grant monitoring activities, and utilize these 
activities to provide grantees with guidance and monitoring. 

Source: GAO-07-147. 

[End of figure] 

USAID Has Taken Steps to Improve Awards and Oversight of Cuba Democracy 
Assistance, but Staffing for Oversight Is Not Yet Complete: 

Since 2006, USAID has taken steps to improve the Cuba Program's award 
and oversight of democracy assistance. To address identified problems 
with awards, since 2006, the Cuba Program has competitively awarded all 
democracy assistance grants and discontinued its use of funded grant 
extensions. To improve its oversight of the grants, USAID has provided 
additional resources to manage and oversee the Cuba Program's aid and 
implemented specific improvements in grant oversight to address our 
recommendations. (See app. II, table 2, for a summary of our November 
2006 findings and recommendations regarding the Cuba Program's awards 
and oversight of democracy assistance as well as USAID's proposed or 
reported corrective actions and the status of these actions.) However, 
as of November 2008, USAID had not yet achieved the staffing level it 
assessed as needed for appropriate oversight. Moreover, because many of 
USAID's actions to improve oversight were taken recently, their impact 
on the risk of Cuba Program grantees' misusing funds and failing to 
comply with U.S. laws and regulations is not yet evident. 

USAID's Cuba Program Has Awarded Grants More Competitively and 
Discontinued Its Use of Funded Grant Extensions: 

USAID's Cuba Program has competitively awarded all $16 million (10 
grants) of democracy assistance since 2006.[Footnote 17] In comparison, 
during its first 10 years, the Cuba Program competitively awarded only 
5 percent (about $4 million, 5 grants) of its democracy assistance. The 
increased use of competition reflects the USAID Cuba Program's 
implementation, in 2007 and 2008, of a policy of using competitive 
solicitation as the principal method for awarding its democracy 
assistance grants.[Footnote 18] 

Further, since 2006, USAID's Cuba Program has discontinued its practice 
of modifying existing grants to provide substantial additional funding 
rather than awarding new grants and has implemented a policy that 
requires grantees to submit interim evaluations in conjunction with any 
future requests for additional funding. In 2006-2008, the Cuba Program 
approved a limited number of no-cost grant extensions but did not 
consider funded modifications to expand the program.[Footnote 19] 
Additionally, in 2007, the Cuba Program notified grantees that they 
would be required to submit interim program evaluations when requesting 
significant increases in funding or extensions; as of November 2008, 
the Cuba Program had received no such requests. 

Subsequent to these changes in the USAID Cuba Program's practices and 
policy, the percentage of its grantees that are worldwide or regional 
NGOs increased while the percentage of grantees that are Cuba-specific 
NGOs declined (see fig. 3). According to the Cuba Program Director, the 
shift in grantee type reflects the more formal requirements for 
submitting a grant proposal contained in the Cuba Program's 2007 and 
2008 annual program statements, such as the requirement that proposals 
include a detailed implementation plan. In addition, the shift reflects 
a decision, starting with the 2008 program statement, to fund grants 
that incorporate capacity building for subgrantees as an important 
element of program activity. The Director noted that building 
subgrantee capacity supports the goal of improving grant oversight, as 
well as the program goal of developing civil society organizations that 
will be effective in assisting Cuba's transition to democratic 
governance and a free market economy. 

Figure 3: USAID Cuba Program Democracy Grantees in 2005 and 2008: 

[Refer to PDF for image] 

This figure contains two pie-charts depicting the following data: 

USAID Cuba Program Democracy Grantees in 2005: 
Cuba-specific NGOs (8): 47%; 
Universities (5): 29%; 
Worldwide or regional NGOs (4): 24%. 

USAID Cuba Program Democracy Grantees in 2005 and 2008: 
Cuba-specific NGOs (4): 31%; 
Universities (4): 31%; 
Worldwide or regional NGOs (5): 38%. 

Source: GAO analysis of USAID data. 

[End of figure] 

USAID Is Taking Actions to Improve Oversight of Cuba Program Democracy 
Assistance, but Staffing Remains Incomplete and Impact of USAID's 
Actions Is Not Yet Evident: 

USAID has recently taken, or plans to take, actions to increase the 
Cuba Program's resources for oversight. In addition, USAID has recently 
taken actions aimed at improving specific aspects of the Cuba Program's 
grant oversight. However, staffing of the Cuba Program has not reached 
the level that USAID has determined is needed to ensure adequate 
oversight. In addition, in some cases the impact of these actions on 
the risk of Cuba Program grantees' misusing funds and failing to comply 
with U.S. laws and regulations is not yet apparent. 

USAID Is Increasing Resources for Cuba Program Grant Oversight: 

To increase resources aimed at improving the management and oversight 
of Cuba Program democracy assistance, USAID established a Cuba project 
committee comprising key USAID and State senior managers in December 
2006; has hired more staff for the Cuba Program office since January 
2008; and contracted for financial services--including reviews of 
grantee internal controls, procurement practices, and expenditures--to 
enhance oversight of grantees in April 2008. In addition, the USAID 
Cuba Program plans to use contract services to provide technical 
assistance and build the capacity of its grantees, particularly smaller 
organizations. 

* Cuba project committee. USAID established a project committee in 
December 2006 to lead the agency's efforts to improve its management 
and oversight of Cuba Program democracy assistance and provide greater 
attention from senior management. This committee consisted of senior 
officials from USAID's Bureau of Management (which includes the Office 
of Acquisition and Assistance) and General Counsel and State's Bureau 
of Western Hemisphere Affairs (including the Cuba Transition 
Coordinator), in addition to the USAID Cuba Program Director. The 
committee met at least quarterly to address Cuba assistance planning, 
preaward reviews, and grantee monitoring and evaluation. According to 
USAID records, topics of discussion have included (1) identifying high- 
risk grantees, including outstanding audit issues, the need for follow- 
on reviews, and review of grantees' monitoring and implementation 
plans; (2) issuing a communication to reinforce USAID guidance on 
preaward reviews and stress the importance of timely follow-up to 
identified findings; (3) reviewing standard grant provisions to ensure 
that grantees were provided clear guidance on how to access referenced 
regulatory materials; (4) obtaining and approving updated and expanded 
implementation plans from certain grantees; and (5) obtaining detailed 
cost-share records from contributing grantees and submitting them to 
the Office of Acquisition and Assistance for review. In late 2007, 
USAID divided the project committee's responsibilities between two new 
committees.[Footnote 20] 

* Cuba Program staffing. Since January 2008, to improve its 
implementation of Cuba democracy assistance, USAID has increased 
staffing in the program office from two to five persons; however, 
staffing remains short of the 11 persons recommended in USAID 
assessments. In December 2007, in response to concerns expressed in our 
November 2006 report and a recommendation in a September 2007 report by 
USAID's Office of Inspector General,[Footnote 21] a formal USAID 
assessment recommended staffing the program office with a director and 
eight staff to ensure successful implementation of the program as well 
as appropriate monitoring and oversight of grantees and grant 
funds.[Footnote 22] Subsequently, a more informal assessment by the 
USAID Cuba Program office identified the need for two additional staff. 
Based on these assessments, the Cuba Program has hired three new staff 
members since January 2008,[Footnote 23] bringing the total staff to 
five persons as of October 2008. According to the Cuba Program 
Director, the program plans to hire two more staff members by January 
2009 and a third by July 2009 at the earliest. 

* Financial services contract. To strengthen grantee oversight and 
better manage program risks, USAID's Cuba Program contracted in April 
2008 with a firm headquartered in Washington, D.C., to conduct 10 to 12 
financial reviews annually over 2 years, at an estimated cost of $1 
million.[Footnote 24] USAID procured these services to strengthen 
program management and provide grantees--particularly smaller, less 
experienced organizations--needed guidance and technical support as 
recommended in our 2006 report.[Footnote 25] According to the contract 
statement of work and related documents, the contractor will (1) 
conduct annual financial reviews of grantees, including grantees' 
internal controls, procurement practices, and expenditures; (2) follow 
up on the findings and recommendations of preaward reviews and other 
audits to advise whether grantees have corrected any weaknesses that 
were identified; and (3) conduct other special reviews as needed. 
[Footnote 26] The contracting officer and the Contract Audit Management 
Division within USAID's Office of Acquisition and Assistance review and 
approve all work plans (including research design, data collection 
instruments, and analysis plans) and draft and final reports. In June 
2008, the contractor began reviews of Cuba Program grantees' 
procurement systems, starting with three Miami-based grantees. 

* Program to build grantee capacity. To help improve the management and 
oversight of Cuba democracy assistance, USAID's Cuba Program has taken 
initial steps to establish a means to provide essential training and 
additional oversight of smaller grants using a "grants under contract" 
mechanism.[Footnote 27] The decision to fund this program was based on 
USAID's assessment of grantee risk, particularly the risks posed by 
smaller, less experienced grantees.[Footnote 28] USAID expects to start 
implementing this program in 2009. 

USAID Has Taken Specific Actions to Improve Cuba Program Grant 
Oversight: 

USAID has taken a number of actions specifically aimed at strengthening 
oversight by ensuring preaward reviews and follow-up; improving grantee 
internal controls and implementation plans; providing guidance and 
monitoring for assistance and cost sharing; and developing structured 
approaches for site visits and other monitoring. 

* Preaward reviews and follow-up. USAID has taken several actions to 
ensure that preaward reviews are completed prior to grant awards. The 
agency also has taken several actions to improve follow-up on issues 
identified during preaward reviews. Since January 2007, the Cuba 
Program, working though the Cuba project and internal management 
committees, has worked to provide sufficient lead time for preaward 
reviews and tracked the resolution of preaward review issues. In March 
2007, USAID's Office of Acquisition and Assistance issued an agencywide 
bulletin that stressed the importance of (1) providing sufficient lead 
time for the completion of preaward reviews and (2) timely follow-up 
and resolution of deficiencies identified in those reviews.[Footnote 
29] In 2007, USAID also developed revised grant agreement language 
linking resolution of issues and findings of preaward reviews and 
follow-up reviews to the obligation of incremental grantee funding; to 
date, this language has been used in grant agreements as appropriate. 
According to the Chief of the Contract Audit Management Division within 
USAID's Office of Acquisition and Assistance, the Cuba Program's 
planned use of the new financial review services contract will help 
ensure timely follow-up on the results of preaward reviews. Previously, 
competing demands on the division for preaward and follow-up reviews by 
other USAID bureaus and offices had delayed reviews for some Cuba 
grantees. 

* Grantee internal controls and implementation plans. USAID has taken 
several actions to require that grantees establish and maintain 
adequate internal control frameworks and develop approved grant 
implementation plans. 

- Internal controls. The Cuba Program office provided grantees guidance 
for accessing reference materials to relevant policies and procedures 
on several occasions. This guidance included an addendum for grant 
agreements, linked to relevant policies and procedures, that USAID 
developed in March 2007 and that USAID records show was provided to all 
grantees at, for example, grantee quarterly coordination meetings and 
by e-mail. Grantees also were e-mailed a list of Internet links for all 
statutory, regulatory, and legal references in their USAID grant 
agreements. Additionally, in 2007, the Cuba Program office developed a 
briefing outline to be used in explaining internal control and other 
requirements to new grantees. 

- Implementation plans. In January 2007, the Cuba project committee 
recommended that the Cuba Program (1) review grantees' existing 
implementation plans to ensure that such plans were documented and 
adequate and (2) request that grantees with significant remaining grant 
funding update and expand their implementation plans. The Cuba Program 
completed its initial round of reviews in May 2007; follow-up on 
recommended changes was completed April 2008. The approved plans 
provide a monthly summary of anticipated activities to assist in 
monitoring grantees and are to be updated annually. Further, in 2007, 
the Cuba project committee recommended that the Cuba Program and the 
Office of Acquisition and Assistance develop and include a new 
provision in grant agreements to require that grantees submit written 
implementation, monitoring, and evaluation plans for approval within 30 
days of the award's start date. In 2008, USAID officials agreed on the 
grant provision, which has been included in agreements for new awards. 
[Footnote 30] 

* Guidance and monitoring for assistance and cost sharing. USAID has 
taken several steps to provide grantees specific guidance on permitted 
types of assistance and on cost sharing and to ensure monitoring of 
grantee expenditures for these items. 

- Permitted assistance. To prevent the use of grant funds for 
inappropriate expenditures, as identified in our 2006 report,[Footnote 
31] USAID has provided grantees clearer, more detailed guidance 
regarding items that may be provided as humanitarian or material 
assistance.[Footnote 32] In addition, in early 2007, the Cuba Program 
required existing grantees to include detailed lists of proposed items 
in their updated implementation plans and requires such lists in the 
implementation plans required to be submitted with new grant proposals. 
USAID reports that these lists enhance oversight and monitoring of 
grantee activities. In addition, the financial services contractor will 
verify whether grantee assistance costs were allowable. 

- Cost sharing. USAID has provided agencywide guidance on cost sharing 
and reviewed grantees' cost-share contributions. In January 2007, as 
recommended by the Cuba project committee, USAID's Office of 
Acquisition and Assistance issued an agencywide bulletin that 
reemphasized the restrictions and limits on cost sharing for grants and 
clarified that USAID does not permit funds obtained from the National 
Endowment for Democracy to be counted toward grantee cost-share 
requirements.[Footnote 33] The cost-share policy is reflected in Cuba 
democracy grant agreements. In January 2007, the Cuba project committee 
recommended that the Cuba Program obtain detailed cost-share records 
from grantees and submit these records to the Office of Acquisition and 
Assistance for review. As of mid-June 2008, USAID had completed its 
review of the cost-share records for all nine then-current grantees 
with cost-share obligations and had found that three grantees had not 
met a substantial share of their cost-share obligations. USAID reduced 
one grantee's cost-share obligation from $1,065,860 to $523,450 and was 
following up with the other two grantees regarding their failure to 
meet their cost-share obligations.[Footnote 34] During two site 
(monitoring) visits that we observed in June 2008, USAID staff reviewed 
the types of cost sharing permitted and emphasized the importance of 
keeping adequate records to support cost-share claims. In addition, the 
new financial services contractor will review grantee support for cost- 
share claims. 

* Structured approach for site visits and other monitoring. USAID has 
taken, or plans to take, several actions to develop and implement a 
more formal, structured approach for site visits and other grant 
monitoring activities. These actions taken included the following: 

- The USAID Cuba Program has developed and used a formal, structured 
approach for its quarterly site visits to grantees. To facilitate and 
ensure consistency in these visits, program staff use a form to 
describe grantee activities, evaluate grantee accomplishments, and 
assess compliance with grant internal control and other requirements. 
[Footnote 35] During our observation of two site visits, we noted that 
USAID sent copies of these forms to grantees via e-mail in advance of 
the visits so that grantees could confirm the accuracy of basic data. 

- USAID reports taking initial steps to use information gathered to 
identify at-risk grantees and prioritize monitoring. For example, in 
May 2007, after noting poor grantee record keeping during several site 
visits, the former program Director e-mailed grantees to emphasize the 
need to maintain adequate documentation in their offices of labor 
costs, rent expenses, and telephone costs, as well as other records 
needed to demonstrate that U.S. funds were being spent for the grants' 
authorized purposes. USAID also has emphasized this requirement during 
quarterly grantee coordination meetings and site visits. The current 
Cuba Program Director told us that, using new staff resources, she 
plans to develop and implement a formal system for performing detailed 
analyses of the site visit results to identify at-risk grantees and 
prioritize monitoring.[Footnote 36] As a first step, the Cuba Program 
recently initiated quarterly reviews of the program's portfolio of 
grantees to identify at-risk grantees and other issues. 

Impact of USAID's Actions to Improve Oversight Is Not Yet Evident: 

Because many of USAID's actions to improve its oversight of the Cuba 
democracy grants were implemented recently, in 2007 and 2008, their 
impact on the risk of grantees' misusing grant funds or failing to 
comply with U.S. laws and regulations is not yet evident.[Footnote 37] 
In mid-June 2008, USAID's financial services contractor's review of 
financial records for three Cuba Program grants found that one of the 
grantees--GAD--lacked adequate support for some purchases. In late June 
2008, we confirmed the USAID contractor's finding during our limited 
review of financial and other records at 5 of the 10 grantees examined 
for our November 2006 report (see app. I for more information about 
this limited review). Specifically, we identified several cases where 
substantial charges to GAD's credit card were not supported by receipts 
listing the items purchased. 

USAID Took Several Steps in Response to Reports of Misused Grant Funds 
but Has Not Provided for Ongoing Risk Management: 

In response to reports of fraud at organizations that had received the 
USAID Cuba Program's two largest democracy aid grants--CFC and GAD-- 
USAID suspended both grants pending the results of USAID Inspector 
General investigations. Additionally, in mid-July 2008, USAID decided 
to accelerate planned reviews of Cuba democracy grantees' procurement 
systems under the April 2008 financial review services contract and to 
conduct audits of grantees' incurred cost under the Inspector General; 
pending the results of those reviews and audits, USAID partially 
suspended two more grants. The procurement reviews, which were 
completed in August 2008, identified weaknesses at three grantees; 
USAID is working with the grantees to correct these weaknesses. USAID 
expects the incurred cost audits to be completed by November 2008 under 
a contract with another firm. 

* CFC. In March 2008, USAID suspended its $7.2 million grant to CFC, 
awarded in 2005, after the CFC's Executive Director informed USAID that 
the organization's former Chief of Staff had misused USAID grant funds. 
[Footnote 38] CFC's grant expired on June 30, 2008, while it was 
suspended. In July 2008, auditors from USAID's Contract Audit 
Management Division within the Office of Acquisitions and Assistance 
confirmed CFC's estimate of the amount of funds stolen[Footnote 39] and 
concluded that the grantee had taken action to strengthen its system of 
internal control. On September 22, 2008, USAID reinstated the grant for 
6 months. 

* GAD. In July 2008, USAID suspended its $10.95 million grant to GAD, 
which was awarded in September 2000. On June 30, 2008, GAD's Executive 
Director had informed USAID that, in following up on deficiencies that 
USAID's financial services contractor and we had identified earlier 
that month, he had determined that one of GAD's employees had used the 
organization's credit card to make unauthorized purchases for his 
personal use; the employee had signed a statement admitting to these 
actions and had promised to repay the cost of these items and had been 
fired.[Footnote 40] USAID suspended the grant on July 2 and referred 
the matter to the USAID Inspector General for investigation; as of 
November 2008, the grant remained suspended, pending conclusion of the 
Inspector General's investigation and the results of a financial system 
review by the financial review services contractor. The grant was 
scheduled to expire on September 30, 2008, but USAID extended the grant 
to March 31, 2009, to permit completion of the investigation and 
review. 

On July 18, 2008, USAID announced that, to determine whether financial 
vulnerabilities exist at grantees and how best to address them, it 
would initiate reviews of the Cuba Program grantees' procurement 
systems under the April 2008 contract and subsequently conduct audits 
of grantees' incurred cost under the USAID Inspector General. In 
addition, USAID reported that it had partially suspended two smaller 
grants pending the outcomes of the procurement reviews.[Footnote 41] 
The program's other grants remained active, based on USAID's review of 
the grantees' A-133 audits[Footnote 42] and other relevant information, 
but pending the results of the procurement reviews and incurred cost 
audits announced in July 2008. 

* Reviews of grantees' procurement systems. In July 2008, USAID 
instructed the financial services contractor hired in April 2008 to 
accelerate planned reviews of current grantees' procurement systems. 
The procurement reviews, completed in August 2008, identified internal 
control, financial management, and procurement weaknesses at three 
grantees. On September 24, 2008, USAID lifted one of the two partial 
suspensions after the grantee agreed to take several corrective 
actions. USAID is assessing whether to lift the other partial 
suspension based on grantee corrective actions, a change in grantee 
management, and other factors. GAD, the third grantee where the review 
found weaknesses, remains suspended. As of October 2008, the 
acceleration of the procurement reviews had used nearly half (about 
$450,000) of the $1 million set aside for the 2-year financial services 
contract signed in April. Further, USAID had not committed the 
additional funds needed to continue the planned reviews of grantees' 
internal controls, procurement practices, and expenditures--key 
elements of the program's approach to reducing grantee risks--over the 
contract's remaining 18 months. 

* Audits of grantees' incurred cost. The USAID Inspector General will 
oversee the audits of grantees' incurred cost, to be conducted under a 
separate contract with another firm. Initial work on the first three of 
these audits began in mid-September 2008; the Inspector General expects 
to complete nine audits by November 2008.[Footnote 43] USAID officials 
said that they would take steps, as appropriate, to address weaknesses 
identified by these audits. USAID estimated the total cost of these 
audits at about $300,000 to $340,000. 

Table 1 summarizes the status of USAID's Cuba democracy grants as of 
October 2008. 

Table 1: Status of USAID Cuba Democracy Grants as of October 2008: 

Grant status: Active; 
Grantee, award period, and amount: Center for a Free Cuba (CFC); March 
2005-2009; $7.2 million; 
Comments: 
* Grant was suspended in March 2008 after the Executive Director 
reported employee fraud; the matter was referred to USAID Inspector 
General for investigation; 
* CFC placed $644,845--its estimate of the amount stolen, plus 
interest--in escrow; 
* Grant expired June 30, 2008; 
* Financial review by USAID's Office of Acquisition and Assistance 
(July 2008) confirmed CFC's estimate and found the grantee had taken 
action to strengthen internal controls; 
* Grant was reinstated and extended for 6 months in September 2008 
after USAID Inspector General informed the agency that the 
investigation did not implicate CFC; 
* Incurred cost audit to be conducted now that grant is reinstated. 

Grant status: Active; 
Grantee, award period, and amount: Grantee A; August 2008-2010; $1.0 
million; 
Comments: 
* New award; 
* Based on a review of prior audits and other factors, USAID decided 
not to include this grant in the procurement reviews or incurred cost 
audits. 

Grant status: Active; 
Grantee, award period, and amount: Grantee B; December 2007-2009; $0.5 
million; 
Comments: 
* Procurement review (August 2008) questioned none of $116,149 billed 
from December 2007 through June 2008 and identified no internal 
control, financial management system, or procurement weaknesses; 
* Incurred cost audit to be completed by November 2008. 

Grant status: Active; 
Grantee, award period, and amount: Grantee C; March 2003-August 2010; 
$0.8 million; 
Comments: 
* Procurement review (completed August 2008) questioned none of $29,323 
billed from July 2007 through June 2008 and identified no internal 
control, financial management system, or procurement weaknesses; 
* Incurred cost audit to be completed by November 2008. 

Grant status: Active; 
Grantee, award period, and amount: Grantee D; May 2008-April 2010; $3.1 
million; 
Comments: 
* New award; 
* Based on a review of prior audits and other factors, USAID decided 
not to include this grant in the procurement reviews or incurred cost 
audits. 

Grant status: Active; 
Grantee, award period, and amount: Grantee E; August 2008-2010; $5.0 
million; 
Comments: 
* New award; 
* Based on a review of prior audits and other factors, USAID decided 
not to include this grant in the procurement reviews or incurred cost 
audits. 

Grant status: Active; 
Grantee, award period, and amount: Grantee F; March 2008-2010; $1.1 
million; 
Comments: 
* Procurement review (August 2008) questioned $167 (less than 0.06 
percent) of $300,043 billed from September 2006 through June 2008 under 
current and prior grant but identified no internal control, financial 
management system, or procurement weaknesses; 
* Incurred cost audit to be completed by November 2008. 

Grant status: Active; 
Grantee, award period, and amount: Grantee G; February 2008-January 
2010; $1.0 million; 
Comments: 
* Procurement review (August 2008) questioned none of $350,304 billed 
from October 2006 through June 2008 under two grants and identified no 
internal control, financial management system, or procurement 
weaknesses; 
* Incurred cost audit to be completed by November 2008. 

Grant status: Active; 
Grantee, award period, and amount: Grantee H; September 2007-March 
2009; $2.7 million; 
Comments: 
* Procurement review (August 2008) questioned none of $1,646,257 billed 
from October 2006 through June 2008 under three grants and identified 
no internal control, financial management system, or procurement 
weaknesses; 
* Incurred cost audit to be completed by November 2008. 

Grant status: Active; 
Grantee, award period, and amount: Grantee I; September 2007-2009; $1.1 
million; 
Comments: 
* Grant was partially suspended in July 2008; 
* Incurred cost audit by USAID's Office of Acquisition and Assistance 
(July 2008) questioned $31,658 (2.6 percent) of $1,233,663 billed from 
December 2004 through December 2006 under a prior grant; 
* Procurement review (August 2008) questioned $17,900 (about 5.5 
percent) of $325,846 billed from September 2007 through May 2008, 
identified no internal control weaknesses, but identified financial 
management system and procurement weaknesses; 
* Partial suspension was lifted in September 2008, after grantee 
resolved cost issues and agreed to take corrective actions; 
* Incurred cost audit to be conducted by November 2008. 

Grant status: Active; 
Grantee, award period, and amount: Grantee J; Sept 2008-2009; $0.5 
million; 
Comments: 
* New award. (Prior grant expired June 30, 2008); 
* Incurred cost audit to be conducted by November 2008. 

Grant status: Partially suspended; 
Grantee, award period, and amount: Grantee K; April 1999-November 2008; 
$2.3 million; 
Comments: 
* Grant was partially suspended in July 2008; 
* Incurred cost audit by USAID's Office of Acquisition and Assistance 
(July 2008) questioned $1,494,996 (66.8 percent) of $2,239,590 billed 
from April 1999 through December 2006; 
* Procurement review (August 2008) questioned $3,515 (2.1 percent) of 
$166,855 billed from April 2007 through May 2008 and identified 
internal control, financial management system, and procurement 
weaknesses; 
* USAID Office of Acquisition and Assistance and Cuba Program is 
assessing whether to lift partial suspension based on audit results, 
grantee corrective actions, change in grantee management, and other 
factors. (Cuba Program officials said that this grantee provides unique 
capabilities); 
* Incurred cost audit to be completed by November 2008. 

Grant status: Suspended; 
Grantee, award period, and amount: Grupo de Apoyo a la Democracia 
(GAD); September 2000-March 2009; $11.0 million; 
Comments: 
* Grant was suspended in July 2008, after allegations of fraud, and 
referred to USAID IG for investigation; 
* Procurement review (August 2008) questioned $1,500,033 (about 57.9 
percent) of $2,592,361 billed from January 2007 through May 2008 and 
identified internal control, financial management system, and 
procurement weaknesses; 
* Grant scheduled to end September 30, 2008, but extended to March 
2009; 
* Financial system review to be completed by November 2008. 

Source: GAO analysis of USAID records. 

Notes: 

The audits of grantee incurred cost overseen by the USIAD Inspector 
General also include a grantee with a grant funded and managed by 
USAID's Office of Transition Initiatives. This grant was not included 
in procurement reviews funded by the Cuba Program under the Bureau for 
Latin America and the Caribbean. The incurred cost audit is to be 
completed by November 2008. 

At USAID's request, because of the Cuban government's hostility to U.S. 
democracy assistance, we have published only the names of those 
grantees whose receipt of USAID funding has been publicly reported in 
2008. 

Award amounts for grantees D, F, H, and I include hurricane assistance. 

Total amount of all grant awards shown in the table is $37.2 million. 
Award amounts are rounded. 

[End of table] 

Conclusions: 

USAID has taken numerous actions since 2006 to improve the Cuba 
Program's award processes and oversight of grantees. However, some 
planned actions have not yet been implemented. As recommended in our 
November 2006 report, USAID took steps to improve the timeliness of 
preaward reviews and resolve issues identified during those reviews and 
has provided more specific guidance on permitted types of humanitarian 
assistance and cost sharing. To provide resources and expertise, USAID 
also contracted with a financial review services firm to follow up on 
audit findings; review grantees' internal controls, procurement 
practices, expenditures, and cost sharing; and provide grantees needed 
technical assistance. In addition, the Cuba Program now requires 
grantees to develop implementation plans and has developed a structured 
approach to monitoring grantees. However, staffing of the program 
office has not reached the level USAID determined is needed for 
effective grant oversight and, as a result, the office has taken only 
preliminary steps to implement a key part of its risk management 
approach--that is, to systematically analyze site visit and other 
grantee data to identify at-risk grantees and prioritize its 
monitoring. 

Moreover, the impact of USAID's actions to improve the Cuba Program's 
risk management on grantee risk is uncertain because most of the 
actions were taken recently. This uncertainty is underscored by the 
recent findings--similar to those we reported in 2006--of grantees' 
misusing funds and of weaknesses in grantees' internal control, 
financial management, and procurement systems that have not yet been 
resolved. Until the current audits of individual grantees' incurred 
cost are completed and the Cuba Program takes steps to address any 
known risks and prevent their recurrence, the program's ability to 
ensure the appropriate use of grant funds remains in question. 

Recommendations for Executive Action: 

To strengthen oversight of USAID's Cuba Program grants and the 
program's ability to ensure the appropriate use of grant funds, we 
recommend that the USAID Administrator take the following two actions: 

* ensure that the Cuba Program office is staffed at the level that is 
needed to fully implement planned monitoring activities, such as the 
systematic analysis of grantee data to identify at-risk grantees, and 
that the agency has determined is necessary for effective oversight; 
and: 

* periodically assess the Cuba Program's overall efforts to address and 
reduce grantee risks, particularly with regard to grantees' internal 
controls, procurement practices, expenditures, and compliance with laws 
and regulations. 

Agency Comments and Our Evaluation: 

USAID provided written comments on a draft of this report, which are 
reprinted in appendix III, as well as technical comments that we 
incorporated as appropriate. 

In its written comments, USAID concurred with our recommendation to 
staff the Cuba Program at levels needed to implement planned monitoring 
activities. The agency said that it was working to ensure that the Cuba 
Program has adequate staffing for strong program oversight and noted 
that it had temporarily assigned three staff to the program while 
implementing plans to recruit and hire additional permanent staff. 
USAID also concurred with our recommendation to periodically assess the 
Cuba Program's overall efforts to address and reduce grantee risk. The 
agency said that the Bureau for Latin America and the Caribbean would 
take specific steps to assess the risks associated with the Cuba 
Program's grantee pool in its ongoing risk assessment work. USAID noted 
that the bureau's assessment would incorporate results from grantee 
monitoring and site visits, reviews by the financial services 
contractor hired in April 2008, preaward reviews, and results from 
audits by the agency's Inspector General. 

We are sending copies of this report to the USAID Administrator, 
appropriate congressional committees, and other interested parties. The 
report also is available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-3149 or gootnickd@gao.gov. Contact points for 
our offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix IV. 

Sincerely yours, 

Signed by: 

David Gootnick, Director: 
International Affairs and Trade: 

[End of section] 

Appendix I: Scope and Methodology: 

To review the actions that U.S. Agency for International Development 
(USAID) has taken since 2006 to improve its award and oversight of the 
Cuba Program's grants as well as actions taken in response to the 
recently detected misuses of program grant funds, we analyzed USAID and 
Department of State (State) records, including agendas and minutes for 
meetings of USAID's Cuba project committee, draft and final changes to 
agency policy and guidance, and audit and financial reports of grantee 
activities. We reviewed and analyzed USAID budget, staffing, and 
procurement records. With regard to staffing, for example, we analyzed 
agency staffing assessments and related records; with regard to USAID 
Cuba Program awards and modifications, we analyzed agency grant 
documents and related records. We verified our analysis of these 
records with agency officials. In June 2008, we observed two quarterly 
grantee monitoring visits and one orientation visit to a grantee with a 
new award conducted by Cuba Program office staff. In addition, we 
conducted limited follow-up reviews of financial and other records at 5 
of the 10 grantees that we had analyzed in our November 2006 report. 
[Footnote 44] In conducting these follow-up reviews, we employed the 
same methodology that we had used for our 2006 report.[Footnote 45] We 
also reviewed audit reports issued by the State and USAID Inspectors 
General in July and September 2007, respectively. We interviewed agency 
officials, including the current and former Cuba Program Directors, 
contracting officials, and auditors, about the actions taken in 
response to our report and actions taken in response to reported misuse 
of grant funds at two grantees. Additionally, we interviewed officials 
from the DMP Group, to which USAID awarded a contract in April 2008 to 
conduct a range of financial reviews of its Cuba Program grantees, and 
we reviewed DMP's work papers and draft and final reports. We did not 
examine USAID's selection of this firm or the reasonableness of the 
contractor's fees. 

We conducted this performance audit from May through July 2007 and from 
May through November 2008, in accordance with generally accepted 
government auditing standards. Those standards require that we plan and 
perform the audit to obtain sufficient, appropriate evidence to provide 
a reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Status of USAID's Proposed and Reported Actions to Improve 
Awards and Oversight for Cuba Democracy Assistance: 

Table 2 summarizes our November 2006 findings and recommendations 
regarding USAID's awards and oversight of democracy assistance for Cuba 
as well as USAID's proposed or reported corrective actions, as of 
September 2008, and our assessment of the status of these actions. 

Table 2: GAO's Findings and Recommendations and USAID's Proposed or 
Reported Actions and the Status of These Actions: 

Awards: 

GAO finding: USAID relied extensively on unsolicited proposals in 
making awards; 
GAO recommendation: None; 
USAID proposed or reported action: Utilize competitive evaluation and 
selection process for awards when possible; 
Status of USAID action: In 2006-2008, USAID competitively awarded all 
new Cuba democracy grants ($16 million). USAID's Cuba Program office 
posted annual program statements in 2007 and 2008 to solicit grant 
applications for Cuba democracy aid. USAID has made several awards 
based on applications received and evaluated under the 2007 and 2008 
statements. USAID plans several additional grant awards under 2008 
statement; closing date for applications is Dec. 31, 2008. USAID 
evaluates applications and awards grants on a "rolling" basis. 

GAO finding: USAID often modified awards to increase funding and extend 
completion dates; 
GAO recommendation: None; 
USAID proposed or reported action: Require grantees to submit interim 
evaluations when requesting significant modifications or extensions; 
Status of USAID action: USAID now requires grantees to submit interim 
evaluations and has discontinued the use of funded extensions. In 2006-
2008, USAID did not modify funding for any Cuba awards and approved a 
limited number of no cost grant extensions. 

Oversight: 

GAO finding: Some preaward reviews were completed after grant award; 
GAO recommendation: Improve the timeliness of preaward reviews; 
USAID proposed or reported action: Provide preaward review results in 
writing to agreement officer prior to grant awards; 
Status of USAID action: Since 2006, USAID has completed one preaward 
review prior to award. In April 2008, USAID awarded a contract for 
financial services to support the Cuba Program; as required, contractor 
will follow up on the results of preaward reviews. 

GAO finding: Some preaward reviews were completed after grant award; 
GAO recommendation: Improve the timeliness of preaward reviews; 
USAID proposed or reported action: Increase lead time for preaward 
reviews; 
Status of USAID action: The unit that performs preaward reviews is a 
member of the project and internal management committees, which has 
increased the lead time for the reviews. 

GAO finding: USAID did not adequately follow up preaward review 
findings; 
GAO recommendation: Improve timeliness and scope of follow-up 
procedures; 
USAID proposed or reported action: Through Cuba project committee 
assistance planning: ensure that any preaward or follow-on reviews are 
timely and tracked until closure, and; address implementation issues, 
including those identified in preaward reviews; 
Status of USAID action: Cuba project committee has ensured timely 
reviews for one new grant and proposed to provide funding incrementally 
for an existing grant. The project committee (now the internal 
management committee) is tracking the resolution of audit issues and 
has made both the award and extension contingent on resolution of audit 
tissues. 

GAO finding: USAID did not adequately follow up preaward review 
findings; 
GAO recommendation: Improve timeliness and scope of follow-up 
procedures; 
USAID proposed or reported action: Revise grant agreement language, 
linking resolution of issues and findings of preaward reviews and 
follow-up reviews to obligation of incremental grantee funding; 
Status of USAID action: USAID officials have agreed on a new grant 
provision and used it when appropriate. 

GAO finding: USAID did not adequately follow up preaward review 
findings; 
GAO recommendation: Improve timeliness and scope of follow-up 
procedures; 
USAID proposed or reported action: Issue agencywide communication by 
May 2007, reinforcing Automated Directive System guidance on preaward 
reviews to stress the importance of timely follow-up on review 
findings; 
Status of USAID action: USAID Office of Acquisition and Assistance 
issued an agencywide bulletin in March 2007 that reinforced Automated 
Directive System guidance on preaward reviews. This bulletin stressed 
the importance of timely follow-up and resolution of deficiencies 
identified in preaward reviews (Procurement Executive's Bulletin No. 
2007-05). 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Require grantees to establish and maintain adequate 
internal controls and develop approved implementation plans; 
USAID proposed or reported action: E-mail grantees Web links to 
relevant policies and procedures and provide guidance on how to access 
regulatory materials; 
Status of USAID action: USAID Cuba Program office sent multiple e-mails 
to grantees in 2007 providing detailed guidance on how to access 
regulatory materials. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Require grantees to establish and maintain adequate 
internal controls and develop approved implementation plans; 
USAID proposed or reported action: Review standard grant provisions by 
May 2007, to ensure grantees are provided clear guidance on how to 
access referenced regulatory materials; 
Status of USAID action: Cuba project committee developed an addendum 
for grant agreements that provides links to relevant policies and 
procedures; the addendum has been provided to all grantees. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Require grantees to establish and maintain adequate 
internal controls and develop approved implementation plans; 
USAID proposed or reported action: Develop briefing outline for use in 
future meetings with grantees reviewing new awards; 
Status of USAID action: Cuba Program office developed a briefing 
outline, which we observed was used to brief new grantees. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Require grantees to establish and maintain adequate 
internal controls and develop approved implementation plans; 
USAID proposed or reported action: Review grantees existing 
implementation plans to ensure that such plans are documented and 
adequate; request that grantees with significant remaining grant 
funding update and expand their implementation plans; 
Status of USAID action: In January 2007, the Cuba project committee 
recommended reviewing grantee implementation plans and requesting that 
grantees with significant remaining grant funding update and expand 
their implementation plans. The Cuba Program completed this action in 
May 2007; follow up on recommended changes was completed in April 2008. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Require grantees to establish and maintain adequate 
internal controls and develop approved implementation plans; 
USAID proposed or reported action: Include a new provision in grant 
agreements to require that grantees submit written implementation, 
monitoring, and evaluation plans for approval within 30 days of the 
award's start date; 
Status of USAID action: USAID officials have agreed on a new grant 
provision, which has been included in new awards. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Require grantees to establish and maintain adequate 
internal controls and develop approved implementation plans; 
USAID proposed or reported action: Conduct audits of selected existing 
grantees to ensure they have established and maintained adequate 
internal controls; 
Status of USAID action: USAID Office of Acquisition and Assistance 
completed audits of two grantees, one of which identified significant 
weaknesses. USAID officials are working with the grantee to correct 
these weaknesses. In April 2008, USAID awarded a contract for financial 
services to support Cuba Program; contractor will conduct annual 
financial reviews of grantees. In July 2008, in response to reports of 
fraud at two of the program's largest grantees, USAID decided to 
accelerate planned procurement reviews and initiate incurred cost 
audits of its Cuba democracy grantees. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Provide guidance on permitted types of humanitarian 
assistance and cost-sharing and ensure that USAID staff monitors 
grantee expenditures; 
USAID proposed or reported action: Grantees submit lists of 
humanitarian aid destined for Cuba to the program office for approval 
and Office of Acquisition and Assistance concurrence. USAID reports 
that these lists enhance oversight and monitoring of grantee 
activities. USAID covered this topic during quarterly grantee site 
visits we observed (it is an item on the visit checklist the program 
now uses). USAID reviewed Department of the Treasury and Department of 
Commerce license issues with grantees during the quarterly site visits 
we observed (it is an item on the visit checklist the program now uses) 
USAID requires grantees to provide copies of their licenses. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Provide guidance on permitted types of humanitarian 
assistance and cost-sharing and ensure that USAID staff monitors 
grantee expenditures; 
USAID proposed or reported action: Include a new provision in grant 
agreements to require that grantees include lists of humanitarian aid 
destined for Cuba as part of their implementation plans; 
Status of USAID action: USAID officials have agreed on a new grant 
provision and used where appropriate. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Provide guidance on permitted types of humanitarian 
assistance and cost-sharing and ensure that USAID staff monitors 
grantee expenditures; 
USAID proposed or reported action: Obtain, and submit to the Office of 
Acquisition and Assistance for review, detailed cost-share records from 
grantees; 
Status of USAID action: As of mid-June 2008, USAID had completed its 
review of grantees' cost-share contributions and had completed 
resolution of most grantees' cost-share contributions. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Provide guidance on permitted types of humanitarian 
assistance and cost-sharing and ensure that USAID staff monitors 
grantee expenditures; 
USAID proposed or reported action: Issue agencywide guidance on 
allowable cost sharing; 
Status of USAID action: USAID Office of Acquisition and Assistance 
issued an agencywide bulletin in January 2007 that reemphasized the 
restrictions and limits on cost sharing for grants and clarified NED's 
status (Procurement Executive's Bulletin No. 2007-02). USAID officials 
have provided similar information to agency implementing partners. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Develop and implement formal and structured 
approach for site visits and other grant monitoring activities and use 
these activities to provide grantees guidance and monitoring; 
USAID proposed or reported action: Develop and implement a formal and 
structured site visit document to capture information about grantee 
activities, accomplishments, and compliance with grant requirements; 
Status of USAID action: Cuba Program office has developed and 
implemented a formal and structured site visit document to capture 
information about grantee activities, accomplishments, and compliance 
with grant requirements. USAID sends copies of these forms to grantees 
via e-mail in advance of monitoring visits so grantees can verify key 
project data. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Develop and implement formal and structured 
approach for site visits and other grant monitoring activities and use 
these activities to provide grantees guidance and monitoring; 
USAID proposed or reported action: Use information gathered to identify 
at-risk grantees and prioritize monitoring; 
Status of USAID action: USAID reports taking initial steps to use 
information gathered to identify at-risk grantees and prioritize 
monitoring; more robust effort dependent on increased staffing. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Develop and implement formal and structured 
approach for site visits and other grant monitoring activities and use 
these activities to provide grantees guidance and monitoring; 
USAID proposed or reported action: Hire two staff, one of them an 
auditor, to monitor grantee activities, accomplishments, and compliance 
with grant requirements; 
Status of USAID action: In December 2007, USAID's Bureau for Latin 
America and the Caribbean conducted a formal assessment of the USAID 
Cuba Program's staffing requirements. This assessment concluded that 
the office should have a Director and eight staff. Subsequent to the 
December 2007 assessment, the Cuba Program office identified the need 
for two more staff. Since January 2008, USAID has increased Cuba 
Program office staffing from two to five people and plans to hire 
additional staff in 2009. 

GAO finding: USAID's Cuba Program office did not adequately monitor and 
oversee grant implementation; 
GAO recommendation: Develop and implement formal and structured 
approach for site visits and other grant monitoring activities and use 
these activities to provide grantees guidance and monitoring; 
USAID proposed or reported action: Convene Cuba project committee in 
June 2007 to identify at-risk grantees and prioritize monitoring and 
consider grantee quarterly reports; 
Status of USAID action: The project committee reviewed reports 
submitted by 16 grantees for the second quarter of 2007. It found 12 
reports provided sufficient narrative detail and asked 4 grantees to 
resubmit more detailed reports. The project committee's analysis was 
used for prioritizing oversight activities at the grantee quarterly 
meeting scheduled for Aug. 1, 2007. 

GAO finding: USAID guidance on closing out grants did not reflect 
current practices; 
GAO recommendation: None; 
USAID proposed or reported action: Update agency policy on closeout 
procedures; 
Status of USAID action: USAID has drafted updated agency guidance on 
closing out grants. 

Sources: GAO-07-147 and GAO analysis of USAID records, supplemented by 
interviews of key USAID officials. 

[End of table] 

[End of section] 

Appendix III: Comments from the U.S. Agency for International 
Development: 

USAID: 
From The American People: 

November 19, 2008: 

David Gootnick, Director: 
International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Mr. Gootnick: 

I am pleased to provide the U.S. Agency for International Development's 
(USAID) formal response on the draft GAO report entitled "Foreign 
Assistance: Continued Efforts Needed to Strengthen USAID's Oversight of 
U.S. Democracy Assistance for Cuba" (GAO-09-165). 

Thank you for acknowledging USAID's actions taken since your initial 
report on the Cuba Program in November 2006. USAID has worked hard to 
address the recommendations and believes the actions have strengthened 
oversight of the Cuba Program. 

We concur with your recommendation to staff the Cuba Program at levels 
needed to fully implement planned monitoring activities for strong 
program oversight. The LAC Bureau has been working to ensure 
appropriate staffing. Since 2007, we have added three full-time 
officers to bring the staff level from two to five. Another senior 
level GS position has been added and the employee will be on board in 
early December. We are currently recruiting for three additional 
positions, including two Foreign Service officers. Since October and 
November, we have had three officers working under temporary detail to 
the Cuba program. The actions taken thus far have helped us improve our 
program oversight, and we fully expect that additional staffing will 
further strengthen our ability to monitor the program. 

USAID has initiated measures to strengthen risk management, and the 
impact of improved oversight is evident. To date, the steps we have 
taken (establishment of the Cuba project committee, adding staff, 
hiring a financial services contractor, conducting timely pre-award 
reviews and follow-up on recommendations, providing specific guidance 
to grantees on USG requirements, improving our site visit and 
monitoring activities) have all been focused at managing the risk 
levels of the program. It is precisely because of these additional 
oversight actions that the cases of alleged fraud and questioned costs 
were detected. 

USAID also concurs with the need to periodically assess the Cuba 
Program's overall efforts to address and reduce grantee risk. Thus, the 
LAC Bureau will add specific steps to assess the risks associated with 
its Cuba program grantee pool in its ongoing risk assessment work. This 
assessment will incorporate results from grantee monitoring and site 
visits, reviews by the financial services contractor, pre-award 
reviews, and 1G audits. 

Thank you for the opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this 
review. 

Sincerely, 

Signed by: 

Sean R. Mulvaney: 
Assistant Administrator: 
Bureau for Management: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David Gootnick, 202-512-3149, or gootnickd@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Jeanette M. Franzel, 
Director, Financial Management and Assurance; Emil Friberg, Jr.; 
Michael Rohrback; Bonnie Derby; Todd M. Anderson; Sunny Chang; Lisa M. 
Galvan-Treviño; and Reid Lowe made key contributions to this report. 

[End of section] 

Footnotes: 

[1] The Cuban Democracy Act of 1992 (Pub. L. No. 102-484) and the Cuban 
Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 (Pub. L. No. 
104-114) authorized the President to provide assistance and other 
support for individuals and independent NGOs to promote peaceful, 
nonviolent democratic change in Cuba through various types of democracy-
building efforts. 

[2] Unless otherwise noted, all years cited are fiscal years (Oct. 1- 
Sept. 30). 

[3] This report is focused on democracy assistance provided by USAID's 
Cuba Program, under the agency's Bureau for Latin America and the 
Caribbean. Since 2007, USAID also has provided some Cuba democracy 
assistance through its Office of Transition Initiatives. 

[4] In this correspondence, "grants" includes both grant and 
cooperative agreements. 

[5] GAO, Foreign Assistance: U.S. Democracy Assistance for Cuba Needs 
Better Management and Oversight, [hyperlink, 
http://www.gao.gov/products/GAO-07-147] (Washington, D.C.: Nov. 15, 
2006). 

[6] Although the scope of our November 2006 report comprised USAID's 
and State's support of democracy assistance for Cuba, the report's 
findings and recommendations focused primarily on assistance provided 
by the Cuba Program within USAID's Bureau for Latin America and the 
Caribbean. A classified version of the report was published in May 
2007. 

[7] Our follow-up review encompassed the 5 grantees that had active 
grants in June 2008. At that time, the grants for 4 of the 10 original 
grantees had expired and 1 grantee had been suspended. 

[8] In the grant preaward phase, potential grantees submit applications 
for agency review. In the award phase, the agency identifies successful 
applicants and awards funding. The implementation phase includes 
payment processing, agency monitoring, and grantee reporting, which may 
include financial and performance reporting. The closeout phase 
includes the preparation of final reports, final reconciliation, and 
any required accounting for property. 

[9] An incurred cost audit involves an examination of the accounting 
records and source documents that support submitted costs billed 
against the grant. The examination also includes an assessment of the 
grantee's internal controls, timekeeping practices, and general 
operating policies. 

[10] USINT in Havana delivers some assistance to independent groups and 
individuals in Cuba, including assistance provided by USAID-and State- 
funded grantees. 

[11] Grantees of USAID's Cuba Program democracy assistance comprise 
three groups: NGOs with a Cuba-specific focus, NGOs with a regional or 
worldwide focus, and universities. 

[12] U.S. law generally prohibits direct assistance to the Cuban 
government and NGOs with links to the government or the Communist 
Party. 

[13] For more information about the assistance that USAID Cuba Program 
grantees reported providing in 2005, see [hyperlink, 
http://www.gao.gov/products/GAO-07-147], p. 20. 

[14] The 2008 appropriation has been allocated among USAID's Bureau for 
Latin America and the Caribbean ($22.7 million) and Office of 
Transition Initiatives ($7.6 million) and two State bureaus--Democracy, 
Human Rights, and Labor ($12.3 million) and Western Hemisphere Affairs 
($2.8 million). 

[15] The President established CAFC in October 2003 to identify (1) 
ways in which the U.S. government could hasten the end of the Castro 
dictatorship and (2) U.S. programs to assist the Cuba people during a 
transition to democracy. The commission has issued two reports, in May 
2004 and July 2006, respectively. The commission's July 2006 report 
recommended providing $80 million over 2 years to increase support for 
Cuban civil society, disseminate uncensored information to Cuba, expand 
international awareness of conditions in Cuba, and help realize a 
democratic transition in Cuba. The report also recommended subsequent 
annual funding of at least $20 million until the end of the Castro 
regime. 

[16] See [hyperlink, http://www.gao.gov/products/GAO-07-147] for more 
details. Our report also discussed the USAID Cuba Program's evaluation 
of the results of U.S. democracy assistance for Cuba and communication 
and coordination between the USAID Cuba Program, State, and USINT 
regarding implementation of this assistance. 

[17] USAID's Office of Transition Initiatives awarded a grant 
noncompetitively in September 2007 in response to an unsolicited 
proposal. 

[18] USAID's Cuba Program implemented this competitive policy by 
issuing, in March 2007 and January 2008, annual program statements 
seeking grant applications. The Cuba Program made seven awards based on 
applications received and evaluated under the 2007 statement, which 
closed on September 30, 2007. Although the closing date for 
applications under the 2008 program statement is December 31, 2008, the 
Cuba Program evaluates applications and award grants throughout the 
year on a "rolling" basis. According to the Cuba Program Director, 
USAID may still consider, as appropriate, unsolicited proposals as 
permitted by agency regulations (Automated Directives System 303)-- 
although the program director plans to award all 2008 grants 
competitively. 

[19] During this period, the program also approved administrative 
modifications such as revising grant agreements to reflect updated 
provisions regarding cost sharing or changes in key grantee personnel. 

[20] The internal management committee--comprising USAID Cuba Program, 
contracting, audit, and legal officials, as well as appropriate others-
-meets at least quarterly to coordinate and provide assistance in the 
implementation of Cuba Program activities. The grantor coordination 
committee--comprising officials from USAID, State, and the National 
Endowment for Democracy--meets quarterly to share information and 
coordinate Cuba democracy assistance activities. This committee was 
established partly in response to GAO and USAID Inspector General 
recommendations to improve coordination of U.S. democracy assistance 
for Cuba. 

[21] USAID, Office of Inspector General, Audit of USAID's Cuba Program, 
Audit Report No. 9-516-07-009-P (Washington, D.C.: Sept. 25, 2007). 
This report recommended that USAID conduct a formal staffing analysis 
and submit written recommendations to the Assistant Administrator for 
Latin American and the Caribbean. 

[22] USAID, Bureau for Latin America and the Caribbean, USAID Cuba 
Program: Formal Assessment of Program Staffing Needs (Washington, D.C.: 
Dec. 27, 2007). The assessment states: "As identified in the [Nov. 
2006] GAO report, [limited staffing in the Cuba Program contributes] to 
grantee internal control weaknesses, along with USAID monitoring and 
oversight deficiencies. Adequate staffing and [the] right staffing 
skills mix are critical to ensuring the successful implementation of 
the program together with the appropriate monitoring and oversight of 
grantees and grant funds ([including the] proper use of funds, 
compliance with applicable laws and regulations, [and] fulfilling 
program goals)." In early April 2008, based on the December 2007 formal 
assessment, the Cuba Program office recommended to the Assistant 
Administrator for Latin American and the Caribbean that he approve (1) 
establishing a separate Office of Cuban Affairs within the bureau 
reporting to the Deputy Assistant Administrator and (2) staffing that 
office consistent with the December 2007 staffing assessment. According 
to USAID officials, these recommendations remain under consideration. 

[23] Although the Cuba Program hired a fourth staff member based on the 
December 2007 USAID assessment, this person no longer works for the 
Cuba Program. 

[24] The Cuba Program will pay the contract costs. The contractor is 
listed in the accounting category on the General Services 
Administration's Financial and Business Solutions schedule. The 
contract was competed and awarded as a small business set-aside. 

[25] For our 2006 assessment of the risk posed by smaller, less 
experienced grantees, see [hyperlink, http://www.gao.gov/products/GAO-
07-147], pp. 34 and 43. 

[26] Special reviews could include reviews of financial and regulatory 
compliance; reviews to determine if costs billed by grantees and paid 
by USAID were incurred in accordance with the grantee's policies, 
procedures, and instructions for the covered period; and reviews of 
cost sharing. 

[27] USAID's Automated Directive System 302.3 defines a "grants under 
contract" as a contract that provides for a USAID contractor to execute 
grants with both nonprofit and for-profit NGOs. 

[28] For our assessment of these risks, see [hyperlink, 
http://www.gao.gov/products/GAO-07-147]. 

[29] USAID Office of Acquisition and Assistance, Procurement 
Executive's Bulletin No. 2007-05 (Washington, D.C.: 2007). 

[30] Following is the new provision included in current Cuba Program 
award agreements: 

"Implementation Plan: The Recipient shall develop a detailed written 
implementation plan for approval by the USAID Cognizant Technical 
Officer (CTO) within 30 days of award. The USAID CTO shall approve any 
revisions to the Plan which involve the use of USAID funds. No USAID 
funding may be used to provide financial assistance or financial 
compensation to any individual or organization in Cuba. In addition, 
the USAID CTO shall review and approve the evaluation of 
accomplishments, and must approve any changes in the program 
description contained in this Agreement. Recipients proposing to send 
humanitarian items to Cuba must also include within the Implementation 
Plan, a complete list of all items the recipient proposes to send to 
Cuba for prior approval." 

"Monitoring and Evaluation Plans: The Recipient shall develop a 
detailed monitoring and evaluation plan for approval by the USAID CTO 
within 30 days of award. The USAID CTO shall approve evaluation plans, 
and monitoring progress toward the achievement of program objectives 
during the course of the Cooperative Agreement." 

[31] See [hyperlink, http://www.gao.gov/products/GAO-07-147], p. 37. 

[32] See [hyperlink, http://www.gao.gov/products/GAO-07-147], p. 20, 
for examples of the types of items that grantees reported providing as 
humanitarian and material assistance in 2005. 

[33] USAID Office of Acquisition and Assistance, Procurement 
Executive's Bulletin No. 2007-02 (Washington, D.C.: 2007). 

[34] According to USAID, the reduction in the grantee's cost-share 
obligation reflected the agency's clarification regarding funds 
obtained from the National Endowment for Democracy. 

[35] The site visit form contains basic program and financial 
information about the grant and grantee (updated from USAID records 
prior to the visit) and instructions to review, among other things, 
work plan activities, whether grantees have appropriate licenses from 
the Department of the Treasury and the Department of Commerce, tax 
records, and detailed support for salaries, rent, utilities, and 
purchases of goods and services. The form instructs staff to compare 
the grantee's budget and general ledger, verify labor contracts, 
examine employee time sheets, and obtain copies of a random sample of 
purchase receipts. The form also allows USAID staff to record needed 
follow-up actions or support for grantees. See the USAID Cuba Program 
2007 Performance Report. 

[36] The former Cuba Program Director told us that he was unable to 
perform detailed analyses of the site visit results after the 
unexpected departure of the program's junior officer in January 2007. 

[37] A July 2008 memo from USAID's Deputy Administrator for Legislative 
and Public Affairs acknowledges this lack of clear impact. The memo 
states, "Many of these initiatives have only recently begun 
implementation and we believe that they will have a significant impact 
over time." 

[38] The CFC grant was suspended on March 26, 2008, after CFC's 
Executive Director reported the problem. According to a USAID 
memorandum, from late 2004 through January 2008, the former Chief of 
Staff used companies that he controlled to sell shortwave radios to CFC 
at inflated prices, pocketing the difference. 

[39] Auditors from USAID's Contract Audit Management Division within 
the Office of Acquisitions and Assistance reported that CFC had placed 
$644,885 in escrow to be transferred to USAID; this amount included 
interest lost because of the alleged fraud. As of October 2008, USAID 
reported that it had recovered $578,810 in project funds and interest 
of $67,992, which will be returned to the Department of the Treasury. 

[40] GAD has recovered from the employee $21,433, the amount it 
considers misappropriated. According to USAID, the financial services 
contractor will examine this estimate during its review of GAD's 
incurred cost; USAID expects the review to be completed by November 
2008. USAID's Contract Audit Management Division within the Office of 
Acquisitions and Assistance will review and approve the contractor's 
report. 

[41] On July 21, 2008, USAID wrote these grantees that "Until notified 
otherwise, your organization should not commence any new activities 
funded under the subject award. Additionally, only essential operating 
costs may be incurred. Costs that may be considered essential to the 
program include basic operating costs currently paid under the award 
such as the salary of limited core employees and recurrent monthly 
costs such as rent, utilities, scholarships for students currently in 
the midst of USAID funded studies, etc." 

[42] Office of Management and Budget Circular No. A-133, Audits of 
State, Local Governments, and Non-Profit Organizations, sets standards 
related to the Single Audit Act (31 U.S.C. 7501-7507), including a 
requirement for organizations that expend $500,000 or more in federal 
awards during the fiscal year to have a single or program-specific 
audit conducted for that year, including a review of internal controls. 
The Single Audit Act is intended to promote sound financial management, 
including effective internal controls, for federal awards administered 
by state and local governments and nonprofit organizations. See GAO-07-
147, p. 30, note 38. 

[43] In addition, CFC and GAD are scheduled to receive incurred cost 
audits. 

[44] Our follow-up review encompassed the 5 grantees that had active 
grants in June 2008. At that time, the grants for 4 of the 10 original 
grantees had expired, and 1 grantee had been suspended. 

[45] [hyperlink, http://www.gao.gov/products/GAO-07-147]. 

[End of section] 

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